You Can Do Well With Mutual Finds That Aim to Do Good

Socially responsible investing is increasingly popular, and these SRI funds now also often beat or match the S&P.

NEW YORK (AdviceIQ) -- Socially responsible investing is increasingly popular, with more and more mutual funds offering this ideals-based style. It is a diverse field, more known for what the funds avoid (some won't invest in cigarette companies, others bar defense contractors, etc.) than what they embrace (pro-green or promoting diversity, for instance). But are they good investments?

Actually, the answer is yes.

Aiming to do well by doing good, SRI funds are not in the business of losing money in pursuit of noble ideals. Also called impact investing, this style has the advantage of offering karmic rewards to its investors, which is powerfully attractive and aids in garnering investments.

Maybe you don't think of yourself as an activist. You don't demonstrate with a sign, you don't have the time or energy to push political, human rights or other types of civic causes. Yet by putting your money into a financial organization that advocates for certain types of corporate behavior, you can be part of generating change.

The demand is there, and financial firms are seeing it. In 1995, according to the Forum for Sustainable and Responsible Investment, there were only 55 mutual funds engaging in SRI, holding $12 billion in assets. By 2010, that grew to 493, with $569 billion. By last year, the number ballooned to 720 funds, managing $1 trillion.

Attaining the goals you want through a fund can be tricky, though. On one hand, for example, it may seem appealing to allocate X% of your money to an emerging-market fund dedicated to impact investing. You could help the emerging economy of a nation or a region with a growing middle class and cast your vote in a certain economic direction. On the other hand, many emerging-market economies have lax environmental and labor regulations and poor track records when it comes to human rights -- and mutual fund companies are hardly lobbyists.